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Amid a down year for global pulp, April marked its biggest contract price decreases yet in the US, according to Fastmarkets’ PPI Pulp & Paper Week price surveys. Tepid demand and oversupply forced pulp suppliers to make sharp downward price concessions throughout April and weakness in North American pulp markets isn’t expected to wane in May.
Benchmark northern bleached softwood kraft (NBSK) tumbled $50/tonne on aggressive buyer pressure, abundant supplies and continued US spot market erosion. Talk of a collapse in Asian export markets including in China, South Korea, and Japan only added to the fire in domestic markets, where buyers took minimal volume on contracts in favor of less expensive spot tonnes.
“With list prices in general, it’s getting rough out there for anyone who has a contract. They ink a contract but it’s hard when their competition gets (pulp) $100-200 cheaper,” said a market participant whose view was typical. In addition to taking on more spot tonnage, with list prices less volatile than spot markets, more market participants have elected to tie contracts to spot market prices instead of list levels with discounts.
Ironically, the latest spot market transactions are now influencing contract prices a month later. That means May contract prices in some cases are already set to drop, which will likely have an impact on effective list prices.
The disparity between spot markets and contract prices is getting great.
“I think the price gap is too great and causing a reflection on things. At the end of the day, the list seems relatively high compared to where spot is transacting at,” added the market source.
Indeed, spot markets themselves are in flux. With market prices changing rapidly this year in every continent and near-term price volatility getting hard to gauge domestically, some spot market players have even decided to ink fresh shipments based on the latest published spot market prices – loading up spot volumes ahead of time and finalizing prices later.
US NBSK pulp spot market prices declined $20/tonne net delivered to the US East and Midwest, according to P&PW surveying through Apr. 27. The $20 decline came after a hefty $30/tonne drop on Apr. 14, so spot NBSK prices tumbled $50/tonne month-over-month.
While NBSK remains weak, industry sources note that southern bleached softwood kraft (SBSK) is in even worse shape because fluff producers have flooded US and offshore spot markets with baled tonnage in a bid to minimize price erosion in fluff. That’s resulted in sharper price erosion and increasingly wide spreads between top and bottom-priced deals in US spot markets.
US SBSK final effective list prices dropped $50/tonne, according to P&PW. But US spot markets tumbled more than NBSK as buyers in the US South snapped up freshly available tonnage at low prices.
US SBSK spot market prices was down $25 vs mid-April and down $55 on average vs a month ago. More erosion is on tap soon, and if some freshly inked deals at the $700 net mark this week start to spread, then May could see even bigger declines than this month, sources said.
While not typical, the rock bottom SBSK deals were done in reaction to export prices to China where several contacts said April levels have collapsed. The $700 net mark is essentially the difference in freight costs between domestic and Chinese spot market deals, a producer source noted.
With numbers where they are, I’d pull back from the US market. There’s a $50-60 differential in freights.
“In the US, freight differentials can be higher but significantly vary customer by customer,” said the SBSK producer source. “But with China, you’ve got consistent freight rates to Chinese ports (so) it’s much more attractive and there’s a large pool of buyers. Whereas in the US there is location, freight rates, trucks, rails, and it’s a smaller basket.”
International Paper (IP) Global Cellulose Fibers unit posted a first quarter 2023 operating loss of $16 million vs a $35 million profit in fourth quarter 2022. Higher sales prices for fluff pulp were more than offset by lower sales volumes and a less favorable mix of lower fluff volumes and higher commodity volumes, the firm said on Apr. 27.
As a result of weak demand for market pulp, during the first quarter, IP said it took 130,000 tons of economic downtime in its cellulose fibers unit. That’s another way of saying market-related downtime.
“The lower demand environment significantly impacted operations and costs in the first quarter as we adjusted our system to align our production with our customer demand,” said IP SVP/CFO Tim Nicholls, during a conference call to discuss the firm’s first quarter results. “These actions resulted in approximately 130,000 tons of economic downtime across the system, and accounted for approximately two-thirds of the ops and cost variance.”
Global bleached hardwood kraft (BHK) markets are perhaps in the worst supply/demand imbalance of any pulp market globally, with US demand slumping and China collapsing over the past month, as buyers held off on purchases until suppliers caved in on price.
North American-produced grades of BHK tumbled $85/tonne, according to P&PW surveying. Meantime, imported bleached eucalyptus kraft (BEK) final effective list prices slid down $85, according to P&PW.
We are seeing this influx of eucalyptus capacity in combination with this (weak) level of demand. It’s the market coming off a crazy high.
“Hardwood is really bad out there. A lot of it is tied to the Asian market as well. It is dire,” said a North American buyer source, who reported broadly available spot tonnes and steeper-than-expected price erosion as new BEK capacity flowed into US markets. Coming off last year’s all-time record highs, now it’s only natural that today’s price declines would become sharper than typical, the source added.
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